Input Stories

The NFIB Small Business Optimism Index fell 3.3 points in March to 97.4, falling below the 51-year average of 98. March’s drop reflected the largest monthly decline since June 2022. Of the 10 components included in the index, only two increased, seven decreased and one stayed the same. The Uncertainty Index fell 8 points to 96 from February’s second highest reading of the index.

Labor quality was cited as the top concern for many small business owners in March, unchanged from February with 19% reporting it as the most important problem. In March, 40% of small business owners reported jobs they could not fill, up 2 percentage points from February. The challenge of filling open positions remains acute, particularly in manufacturing, transportation and construction. Taxes were the second most important concern, with 18% reporting them as their most important problem, up 2 points from February.

A net 38% of small business owners reported raising compensation, up 5 percentage points from February. Profitability remained under pressure, with a net negative 28% reporting positive profit trends, 4 points worse than in February. Of those reporting lower profits, 35% claimed weaker sales, while 18% cited ordinary seasonal adjustments. A net 26% of small business owners planned price hikes in March, down 6 percentage points from February after January had the highest reading in 11 months. On the other hand, 6% reported their last loan was harder to get than previous attempts, up 4 points from February and the largest monthly increase since September 2023, while a net 4% of owners reported paying a higher rate on their most recent loan.

The outlook for general business conditions fell 16 points to 21. The share of firms saying it is a good time to expand fell 3 percentage points to 9%. One thing is becoming clear: uncertainty is here to stay. This uncertainty has been causing turbulence in small business optimism. Since last October, “Expected Business Conditions” has moved from net negative 5% to net 52% in December, and now back down to net 21%.

The Producer Price Index for final demand (also known as wholesale prices) decreased 0.4% over the month in March, after inching up 0.1% in February. Over the year, producer prices moved up 2.7%, coming in lower than expectations. Prices for final demand excluding foods, energy and trade services ticked up 0.1% over the month in March, after increasing 0.4% in each of the previous three months. Prices for these goods advanced 3.4% from March 2024.

In March, prices for final demand services declined 0.2%, while prices for final demand goods dropped 0.9% A 1.3% decrease in prices for machinery and vehicle wholesaling was a prominent factor in the March decline in the final demand services index. Meanwhile, two-thirds of the reduction in the final demand goods index can be attributed to an 11.1% drop in gasoline prices. On the other hand, prices for steel mill products increased 7.1% over the month in March.

Processed goods for intermediate demand stayed the same in March, following a 0.4% jump in February. A 0.9% increase in the index for processed materials less foods and energy offset price decreases for processed energy goods and processed foods and feeds, which fell 3.2% and 0.5%, respectively. Over the year, the index rose 0.9%, up from the 0.4% increase in February.

Meanwhile, prices for unprocessed goods for intermediate demand fell 4.1% in March, the largest decrease since May 2023 after three consecutive monthly increases. Nearly three-fourths of the March decline can be attributed to a 7.5% drop in the prices for unprocessed foodstuffs and feedstuffs. Additionally, the unprocessed energy materials index decreased 3.3%. Despite the monthly declines, prices for unprocessed goods for intermediate demand surged 7.1% from March 2024.

Consumer prices decreased 0.1% over the month but rose 2.4% over the year in March, slowing from the 2.8% over-the-year rise in February and coming in lower than expectations. Core CPI, which excludes more volatile energy and food prices, edged up 0.1% over the month and rose 2.8% over the year, the smallest 12-month increase since March 2021.

Shelter rose 0.2% over the month and 4.0% over the year, the smallest 12-month increase since November 2021. Meanwhile, energy costs fell 2.4% over the month in March, led by a 6.3% drop in the gasoline index. On the other hand, the decline in the gasoline index was offset by over-the-month increases in the indexes for natural gas (up 3.6%) and electricity (up 0.9%). Over the past 12 months, the energy index declined 3.3%. Meanwhile, prices for transportation services continued to edge down over the month (down 1.4%), but were still up 3.1% over the year, with motor vehicle insurance leading the increase, surging 7.5% over the year.

Food prices continue inching up, rising 0.4% over the month and 3.0% over the year in March. Although the food at home index grew 2.4% over the year, the underlying index for meats, poultry, fish and eggs increased 7.9% over the year in March. Driven by the bird flu outbreak, the index for eggs alone surged 5.9% over the month and 60.4% over the year. Meanwhile, food away from home rose 0.4% in March and was up 3.8% over the year.

As the over-the-year headline inflation rate remains elevated, markets are anticipating that the Federal Open Market Committee will keep rates steady at its meeting next month, but because of recent volatility in the markets, there’s less confidence in this expectation. Federal Reserve Chairman Jerome Powell said they’re likely to see a rise in inflation in coming quarters as higher tariffs will be working their way through our economy, and that their obligation is to make certain that a one-time increase in the price level does not become an ongoing inflation problem. These comments suggest that the Fed will likely keep its benchmark interest rate unchanged in the coming months, but if there were to be a liquidity issue induced by market volatility, that could shift the Fed’s decision-making.

In March, Texas factory activity rose after declining in February. The production index increased more than 15 points to 6, returning to growth. The new orders index improved 3.4 points to -0.1, indicating new orders were roughly stable from the prior month. The capacity utilization index remained negative but rose more than 6 points to -2.3, while the shipments index was little changed at 6.1.

Perceptions of manufacturing business conditions continued to worsen in March, with the general business activity index falling 8 points to -16.3, its lowest point since last July. Furthermore, the company outlook index fell 5.5 points to -10.7. Meanwhile, the outlook uncertainty index rose 7 points to 36.2, the highest reading since fall 2022, after surging in February.

Labor market indicators suggested a decrease in employment and slightly shorter workweeks in March, with the employment index slipping further into negative territory to -4.6, while the hours worked index soared 11.3 points but remained negative at -2.9. Nearly 12% of firms reported net hiring, while a higher percentage (16.4%) noted net layoffs. Upward pressure on input prices intensified in March, while wages and selling price increases remained relatively stable. The prices paid for raw materials index rose from 35.0 to 37.7, a multiyear high, while the prices paid for finished goods index decreased marginally, from 7.8 to 6.3. Meanwhile, the wages and benefits index edged down from 16.7 to 16.0.

The outlook for future manufacturing activity is now mixed. The future production index inched down less than a point to 27.6, with 43.3% of firms expecting increases in output in the next six months. Meanwhile, the future general business activity index plummeted more than 14 points to -6.6, the first negative reading since May 2024. Other future activity indexes remained positive but slipped below their averages.

New orders for manufactured goods rose 0.6% in February, building on January’s 1.8% gain. When excluding transportation, new orders edged up 0.4%. Orders for durable goods increased 1.0%, following a 3.4% surge in January. Year to date, durable goods orders are up 2.3%. Nondurable goods orders ticked up 0.3% in February, the same as the prior month. Nondurable goods orders are up 0.8% year to date.

New orders for mining, oil field and gas field machinery led the increase in durable goods, up 12.7%. In January, the largest monthly decrease occurred in ships and boats, which declined 15.9%, similar to the prior month. The largest over-the-year changes occurred in nondefense aircraft and parts (up 64.1%) and ships and boats (down 12.9%).

Factory shipments increased 0.7% in February, after rising 0.5% in January. Shipments excluding transportation edged up 0.4%, nearly the same as the previous month. Shipments for durable goods improved 1.2% in February, up from 0.7% in January and up 1.3% year to date. Meanwhile, nondurable goods shipments rose 0.3% in February and are up 0.8% year to date.

Unfilled orders for all manufacturing industries rose just 0.1% in February, following a 0.2% increase in January. Inventories advanced 0.1%, while the inventories-to-shipments ratio dipped to 1.45. The unfilled orders-to-shipments ratio for durable goods decreased to 6.81 in February from 6.84 the prior month.

Job openings for manufacturing dropped by 31,000 from an upwardly revised 513,000 in January to 482,000 in February. Durable goods job openings decreased by 21,000, while nondurable goods job openings declined by 11,000. The manufacturing job openings rate fell 0.3% to 3.6% in February and decreased from 4.2% the previous year. The rate for durable goods manufacturing similarly fell 0.3% to 4.2%, while it ticked down 0.2% to 2.7% for nondurable goods.

In the larger economy, the number of job openings fell to 7.6 million, a decrease of 194,000 from the previous month and 877,000 from the previous year. The job openings rate declined to 4.5%, down from 4.7% in January and from 5.1% last year. This data reflects an overall labor market that has eased back closer to pre-pandemic levels, but remains relatively tight from a historical perspective.

The number of hires in the overall economy inched up 25,000 to 5.4 million in February but dropped 268,000 from the previous year. The hires rate for the overall economy stayed the same in February at 3.4%. Meanwhile, the hires rate for manufacturing stayed the same at 2.6% from January. The hires rate for durable goods was unchanged at 2.5%, but edged down 0.1% to 2.7% for nondurable goods.

In the larger economy, total separations, which include quits, layoffs, discharges and other separations, fell 11,000 from January to 5.3 million and dropped 215,000 from the previous year. The total separations rate stayed the same at 3.3% for the overall economy but edged down 0.1% for manufacturing to 2.5%. Within that rate, layoffs and discharges declined by 12,000 in February for manufacturing, while quits decreased by 1,000. The quit and layoff rates continue to remain lower for manufacturing than the total nonfarm sector.

Nonfarm payroll employment increased by 228,000 in March, well above expectations. On the other hand, February and January’s job gains were each revised downward by 14,000. The 12-month average stands at 156,750 job gains per month. The unemployment rate ticked up 0.1% to 4.2%, while the labor force participation rate also inched up 0.1% to 62.5%.

Manufacturing employment ticked up by 1,000, but the February gain of 10,000 was revised downward by 2,000 jobs to an increase of 8,000. The most significant gains in manufacturing in March occurred in miscellaneous manufacturing, which added 2,100 jobs over the month, recovering some of the 2,900 jobs lost in February. Meanwhile, the most significant losses occurred in fabricated metal product manufacturing, which shed 1,600 jobs over the month.

The employment-population ratio stayed the same at 59.9% but is down 0.4 percentage points from a year ago. Employed persons who are part-time workers for economic reasons decreased by 157,000 to 4.78 million but are up from 4.31 million in March 2024. Native-born employment is up 329,000 over the month and 944,000 over the year. Meanwhile, foreign-born employment is up 538,000 over the month and 1,111,000 over the year.

Average hourly earnings for all private nonfarm payroll employees rose 0.3%, or 9 cents, reaching $36.00. Over the past year, earnings have grown 3.8%. The average workweek for all employees stayed the same at 34.2 hours but inched up 0.1 hour for manufacturing employees to 40.2 hours.

In March, U.S. manufacturing activity stalled after strong growth in February. The S&P Global U.S. Manufacturing PMI fell to 50.2 in March from 52.7 in February, remaining above the 50.0 no-change score. Production declined for the first time since December, even as new orders rose modestly and exports stabilized. Confidence softened amid uncertainty over federal policies, specifically tariff implementation.

After February’s fastest rise in production in three years, March’s fall in production is due partially to fewer instances of front-running output before tariff implementation. Employment numbers were also weighed down by future uncertainty, remaining unchanged after four months of growth. Input costs continued to rise, reaching the highest level in two-and-a-half years as suppliers start adjusting prices in response to tariffs. In response, output charges rose for the fourth consecutive month to a 25-month high.

New orders growth was modest, and new export orders have increased from clients in Asia, Canada and Europe. Backlogs declined at the fastest rate since December. Firms signaled a preference to utilize existing inputs wherever possible, recording a drop in stocks of inputs.

In March, the global manufacturing sector expanded at a slower pace, falling to 50.3 from 50.6 in February. Four of the five PMI components had either a negative or less positive impact on the overall level, as output and new orders grew at a slower rate, while employment and stocks of purchases fell slightly. On the other hand, supplier delivery times continued to decline, providing a somewhat stronger positive contribution.

India, Greece, Australia and Brazil had the highest PMI readings in March, while the Eurozone and China’s PMI also improved. On the other hand, the contraction in Japan and the U.K. deepened. The lackluster conditions, driven by rising concerns about the geopolitical situation, high costs and potential disruption to global trade flows, led confidence to fall to a three-month low. Output expanded for the third consecutive month, driven by intermediate goods and consumer goods, but at the weakest pace during that period. Meanwhile, investment goods fell for the ninth time in the past 10 months. The lackluster conditions for output were mirrored for new orders, with the rate of new order growth being meager. On the other hand, international trade volumes stabilized, with new exports exhibiting a minor increase.

In March, manufacturing employment declined for the eighth consecutive month but at a slower rate than the prior month. Employment losses in the Eurozone and the U.K. were offset only partially by growth in China and Japan, while U.S. staffing levels stayed the same. Input costs rose at nearly as high of a rate as February, while the rate of increase in selling prices was the highest since June 2024.

In March, the U.S. manufacturing sector fell back into contraction territory after two consecutive months of growth, with the ISM Manufacturing^® PMI decreasing to 49.0% from 50.3% the prior month. Customer demand and output weakened, while inputs strengthened further as a temporary move to head off increased tariff rates. The New Orders and Employment Indexes fell further into contraction territory, declining to 45.2% and 44.7%, respectively. Production contracted after two consecutive months of expansion, weakening to 48.3%, 2.4 percentage points lower than February. Meanwhile, inventories (53.4%) grew at a faster pace in March, which is not a positive sign amid slowing demand.

The New Orders Index contracted for the second consecutive month and at a faster pace than the prior month, a 3.4 percentage point drop from February. The index hasn’t shown consistent growth since a 24-month streak of expansion ended in May 2022, and respondents noted a clear decline in demand from February, with three of the six major sectors—machinery, transportation equipment and chemical products—reporting a decline in new orders.

The New Export Orders Index dropped back into contraction territory to 49.6% after two consecutive months of expansion, 1.8 percentage points lower than February. Panelists commented on Canadians’ lack of desire to purchase U.S. goods as one of the reasons for contraction. Meanwhile, the Imports Index exhibited growth for a third consecutive month but at a slower pace than February, dropping 2.5 percentage points to 50.1% in March. Buyers continued to pull forward deliveries as much as possible to get ahead of tariffs.

The Employment Index contracted for the second consecutive month and at a faster pace than the prior month, a 2.9 percentage point drop from February. Of the six largest manufacturing sectors, none reported increased employment. Companies primarily reduced headcounts through attrition and hiring freezes, rather than layoffs.

The Prices Index rose 7 percentage points to 69.4%, indicating raw materials prices increased for the sixth straight month in March to its highest reading since June 2022, driven by the dramatic rise in commodity prices as a result of recently imposed tariffs. Steel, aluminum, copper, corrugate and plastic resins registered increases. Forty-six percent of companies reported paying higher prices, up from more than 31% in February and nearly 21% in January.